BA 115IU

International Marketing
Chapter 18:
Pricing for international markets

Lecturer: Dinh Thi Le Trinh

 Pricing policy
◼ Pricing problems and price policy are influenced
by culture
◼ In higher power distance (preference for hierarchy):
customers rely more on price as a signal of quality
◼ Consumers who prefer local products will pay higher
prices for products, whether they actually are produced
locally or not
 Pricing objectives
◼ Price decisions are viewed two ways:
◼ Pricing as an active instrument
◼ The company sets prices (rather than following market prices)
to achieve a specific objective
◼ Pricing as a static element
◼ Exports only excess inventory
◼ Places a low priority on foreign business
◼ Views its export sales as passive contributions to sales volume
 Approaches to international
pricing
◼ Full-cost vs variable-cost pricing
◼ Skimming vs penetration pricing
 Full-cost vs Variable-cost
pricing
◼ Variable-cost pricing
◼ Firm is concerned only with the marginal or
incremental cost of producing goods to be sold
in overseas markets
◼ Full-cost pricing
◼ the total fixed and variable cost
 Skimming vs penetration
pricing
◼ Skimming
◼ Setting the premium price: to reach a
segment with relatively insensitive price
◼ Penetration pricing policy
◼ Setting low prices: to stimulate market and
sales growth
 Price escalation
◼ Costs of exporting
◼ Taxes, tariffs, and administrative costs
◼ Taxes include tariffs
◼ Tariff – fee charged when goods are brought into a
country from another country
◼ Administrative costs
◼ Include export and import licenses
◼ Other documents
◼ Physical arrangements for getting the product from port of
entry to the buyer’s location
 Price escalation
◼ Inflation
◼ the selling price must be related to the cost of goods
sold and the cost of replacing the items
◼ Deflation
◼ keep prices low and raise brand value to win the trust of
consumers
◼ Exchange rate fluctuations
◼ Varying currency values
◼ Middleman and transportation costs
 Approaches to lessening price
escalation
◼ Lowering distribution costs
◼ Shorter channels
◼ Reducing or eliminating middlemen
◼ Using foreign trade zones to lessen price
escalation
◼ Dumping
◼ Use of marginal (variable) cost pricing
◼ Selling goods in foreign country below the price of the
same goods in the home market
 Leasing in international
markets
◼ Selling technique that reduces high prices
and capital shortages
◼ Opens the door to a large segment of
nominally financed foreign firms
◼ Firms can be sold on a lease option but might
be unable to buy for cash
◼ Can ease the problems of selling new,
experimental equipment
 Leasing in international
markets
◼ Helps guarantee better maintenance and
service on overseas equipment
◼ Helps to sell other companies in that
country
◼ Revenue tends to be more stable over a
period of time than direct sales
◼ Leasing disadvantages
◼ Inflation may lead to heavy losses at end of
contract period
 Countertrade as a pricing tool
◼ Types of countertrade:
◼ Barter
◼ Compensation deals
◼ Counterpurchase or offset trade
◼ Product buyback agreemen
Transfer pricing strategy
 Transfer pricing strategy
◼ Transfer pricing refers to the pricing of goods,
services, and intangible property bought and sold
by operating units or divisions of the same
company.
◼ Transfer pricing concerns intracorporate
exchanges, which are transactions between
buyers and sellers that have the same corporate
parent.
◼ Ex: Toyota subsidiaries both sell to, and buy from,
each other.
 Transfer pricing strategy
◼ Benefits
◼ Lowering duty costs
◼ Reducing income taxes in high-tax countries
 Price quotations
◼ May include specific elements affecting the price
◼ Credit
◼ Sales terms
◼ Transportation
◼ Currency
◼ Type of documentation required
◼ Should define quantity and quality
 Administered pricing
◼ Cartels
◼ various companies producing similar products

or services work together

◼ May use formal agreements

◼ To set prices
◼ Establish levels of production and sales
◼ Allocate market territories
◼ Redistribute profits
◼ Example: OPEC
Administered pricing
◼ Government-influenced pricing
◼ Establishes margins
◼ Sets prices and floors or ceilings
◼ Restricts price changes